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The
'negotiation,
planning, and permitting' stage, the 'construction and holding'
stage, and the 'absorption
or selling'
stage.These
are the three distinct and progressive stages of the land
development process.

Stage One planning and permitting (a.k.a. entitlement) costs such
as preliminary and final engineering, environmental studies, application costs,
and all other costs of obtaining
subdivision approval are land development costs that may or may not be
incurred by the investor – but they will be incurred by someone. To the extent
these costs are paid by the investor,
they are entered to the model and included in the cost of goods sold calculation. If these costs are not paid by the investor, another person or another entity incurs
the cost, typically resulting in a higher
land cost for the investor.

There may be Stage One costs for
each phase in multi-phased project, although most will nearly always occur in
Phase 1. Stage One costs entered to the model are recaptured upon the release
of funds from the construction loan.

The
model recognizes aspects of the initial
stage inasmuch as it
can be used to analyze the impact, often beneficial, of a multi-phase
project versus a single phase project, as well as the most often
favorable effect of negotiating land purchase options when dealing with
multi-phase projects. These recognitions pertain to the negotiation and
planning aspects of stage one.
Permitting costs such as preliminary
engineering, environmental studies, application costs, and all other
costs of obtaining subdivision approval are included in the land
development cost, and as such are accounted for at the end of
the construction and holding stage.

Stage two
is the
period of time beginning with the month of the initial land purchase
and ending the month prior to the first lot sale. Negotiations are over. The minimum length of
stage two is the number of months it takes to install the phase
1 infrastructure (i.e., construction period). There are times
however, when the stage is necessarily extended due to events such as
inclement weather, material shortages, governmental intervention,
contractor issue, or other unforeseen occurrences. A longer
than
anticipated construction and holding period is detrimental to
project profitability. The model recognizes and measures, within given
parameters, the impact of variable construction and holding periods.

The
third stage,
the absorption or selling period, begins the month of the
first lot sale and ends the month the last lot is sold. Subsequent
phases, if applicable, are constructed during this stage.
Anyone with land development experience will attest
that the
importance of the
absorption rate cannot be over-emphasized. If lots do
not sell at a sufficient pace, profitability suffers. The model
allows
its user to modify the absorption rate, up or down, the result being a
measure of increased or decreased project profitability. In fact, all
of the land development components may be modified and the resulting
effect on profitability can be measured.

The flowchart below is a visual
representation of timeline
concepts inherent to the land development process.

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Stage
1

Negotiation,
Planning & Permitting

No
Time Limit

Contract With Landowner

Preliminary Layout

Environmental Studies

Governmental Processes

Lender Requirements

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It
is here, the point
between stage 1 and stage 2, that the initial land
purchase takes place, the construction of phase one begins, and
interest begins to accrue on bank and seller loans.

Stage
2

Construction
& Holding

Minimum
of 1 Month - Maximum of 11 Months
(Model Parameter)

Construction of Phase 1

Occurrences of Unknown Events

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The
point between
stage 2 and stage 3 is when the first lot sale occurs and
the bank's principal loan reduction begins.

The
final lot sale occurs at the end of stage 3.
This is also the
time
of the initial equity contribution is returned to the developer and the
end of the project.

Value and Timeline
Relationship

It is important to note that the value of a subdivision is determined by its
position on the land development timeline. It follows that the land (the
subdivision) is worth more when the permitting or entitlement process has been
completed - and vice versa. The land is worth more when the site improvements
have been completed - and vice versa. And
value is at its maximum when all site improvements have been completed and
before the first lot has been sold. The value decreases as lots are sold
until the last lot is sold and the value of the subdivision is zero. The LDM can be used to estimate and/or support
values along the land development timeline.

Again, there
are three distinct and progressive stages of the land
development process. The
'negotiation,
planning, and permitting' stage, the 'construction and holding'
stage, and the 'absorption
or selling'
stage.

If
you wish to ask us a question about the model, 'Contact
Us' and we will get back to you
as soon as possible.